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Curbing Rising Housing Costs: A Model-Based Policy Comparison

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  • Boaz Abramson
  • Tim Landvoigt

Abstract

Recent decades have seen house prices grow strongly relative to incomes, making housing ever less affordable. We develop and quantify a model of segmented housing markets to study the drivers of rising housing costs and to evaluate policies aimed at curbing these costs. We show that rising wealth dispersion, together with stagnating housing supply, can explain the observed increase in housing costs. Demand-side policies such as down payment assistance and mortgage interest deductions inadvertently cause upward pressure on house prices and exacerbate unaffordability. Supply-side policies such as tax credits for development or construction of affordable housing lower house prices by increasing the housing stock. Which type of new housing is built matters: new construction in the high-end segments improves affordability by more in all segments of the housing market compared to new construction in bottom-end segments.

Suggested Citation

  • Boaz Abramson & Tim Landvoigt, 2025. "Curbing Rising Housing Costs: A Model-Based Policy Comparison," Journal of Economic Perspectives, American Economic Association, vol. 39(3), pages 27-44, Summer.
    • Handle: RePEc:aea:jecper:v:39:y:2025:i:3:p:27-44
    DOI: 10.1257/jep.20241427
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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